Karachi, June 12, 2018 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed entity ratings assigned to Saudi Pak Industrial and Agricultural Investment Company Limited (Saudi Pak) at ‘AA+/A-1+’ (Double A Plus/A-One Plus). The previous rating action was announced on June 19, 2017. Outlook on the assigned rating is ‘Stable’. Ratings assigned to Saudi Pak take into account its strong shareholders’ profile, with two sovereigns, Government of Pakistan (GoP) and Kingdom of Saudi Arabia (KSA), having an equal stake in the company under the terms of a joint venture agreement.

The company’s risk appetite remains moderate with disbursements mainly targeted towards mid-tier companies. With reduction in average benchmark rates, yield on investments declined, thereby more funds were channelized towards lending portfolio. In line with higher disbursements, the gross loan portfolio was reported marginally higher at end-FY17.

Concentration in the lending portfolio has remained high as the ten largest exposures represented more than half of performing advances. However, high concentration in lending portfolio is a function of small size of the portfolio itself. Sector wise concentration exhibited increase with largest exposures primarily pertaining to energy, oil and gas, textile and dairy and poultry at end-FY17. Asset quality indicators exhibited improvement on a timeline basis owing to reduction in the quantum of non-performing loans as a result of recovery/regularization of clients.

Major portion of the investment portfolio has been deployed in government securities primarily T-bills; the credit and interest risk emanating from the same is limited owing to shorter maturity of instruments. Among listed equities, investment pertains to dividend yielding and highly liquid stocks with major exposures in power, banking and fertilizer segments. During FY17, the limit on investment in listed equity has been increased.

Despite lower average markup bearing assets, core income of the company improved on the back of higher dividend and rental income. DFI sector has faced a general decline in net markup and non-markup income owing to prevalent constant benchmark rates and lackluster stock market performance; however Saudi Pak’s pre-tax profitability was largely less affected than the peer group.

Going forward, the institution’s net markup income is projected to augment in line with increased focus towards corporate lending portfolio. Yield on mark-up bearing assets also declined in view of lower proportion of high yielding PIBs portfolio during FY17. Resultantly, spreads were recorded lower on a timeline basis. However, accounting for deferred tax, profit after tax was reported higher during FY17.

As a secondary market borrower, the company is primarily dependent on funding from other financial institutions; fund mobilization activity under COIs is currently limited. More than two-fifths of the borrowings are short term in nature. Owing to sale of long-term investments, asset liability mismatch previously evident in up to 6 months bucket was largely rectified.

Overall liquidity profile of the institution, albeit declined, still remained adequate in line with presence of sufficient liquid assets on the balance sheet. Tier-1 equity augmented on a timeline basis on the back of profit retention. Net NPLs (including TFCs) as a portion of Tier-1 capital, were reported lower during the outgoing year as an outcome of decline in NPLs and enhanced equity base.

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